Mining Tax Grab - How will it pan out?

[trainspotter]

Has anyone considered the social impact of this 40% tax? Let's just for comedy purposes only think this through logically. Say I am a great big naughty mining company that employs thousands of skilled workers and making billions but yet still paying billions in tax. PM Rudd gets his way and imposes his socialist reforms to cover the black holes he has created by linking infrastructure programmes and SGC contributions to this new tax. I, as a good corporate citizen go along with this taxing reform but decide to change my strategy of investment in this country. I decide not to sponsor local community projects. I decide not to employ indigenous and disadvantaged personell. I decide not to negotiate directly with the traditional owners of the land for the mineral rights so I can buy their sovereignty and ask the government to fight this on my behalf instead. I decide not to invest billions of dollars in infrastructure to expand my operations in this country and instead diversify to other less taxing countries.

Yes I am still here and making and paying my tax dollars but the overall affect to the community will be withersome due to these harsh penalties I must put in place to make my venture commercially viable for its lifespan of production. What happens after this I hear you ask? Not my problem, I wont be here, Brazil for it's iron ore, Canada for it's phosphate, Papau New Guinea for it's copper, Sierra Leone ......... I will stop now as I am making too much white noise.

Do you really think the Government thought this through? And if they did why did they not consult with the mining fraternity first and have a heads of agreement in place prior to the annoucement? Do you believe the billions wiped off in stock value makes the mining companies want to invest more in a country with a belligerent governement?

Mines do not spring up overnight. Years of planning go into these productions prior to commitment. I believe we have lost this commitment.

 

[todster]

Has anyone considered the social impact of this 40% tax? Let's just for comedy purposes only think this through logically. Say I am a great big naughty mining company that employs thousands of skilled workers and making billions but yet still paying billions in tax. PM Rudd gets his way and imposes his socialist reforms to cover the black holes he has created by linking infrastructure programmes and SGC contributions to this new tax. I, as a good corporate citizen go along with this taxing reform but decide to change my strategy of investment in this country. I decide not to sponsor local community projects. I decide not to employ indigenous and disadvantaged personell. I decide not to negotiate directly with the traditional owners of the land for the mineral rights so I can buy their sovereignty and ask the government to fight this on my behalf instead. I decide not to invest billions of dollars in infrastructure to expand my operations in this country and instead diversify to other less taxing countries.

Yes I am still here and making and paying my tax dollars but the overall affect to the community will be withersome due to these harsh penalties I must put in place to make my venture commercially viable for its lifespan of production. What happens after this I hear you ask? Not my problem, I wont be here, Brazil for it's iron ore, Canada for it's phosphate, Papau New Guinea for it's copper, Sierra Leone ......... I will stop now as I am making too much white noise.

Do you really think the Government thought this through? And if they did why did they not consult with the mining fraternity first and have a heads of agreement in place prior to the annoucement? Do you believe the billions wiped off in stock value makes the mining companies want to invest more in a country with a belligerent governement?

Mines do not spring up overnight. Years of planning go into these productions prior to commitment. I believe we have lost this commitment.

All in one week?
Take a deep breath and think it through yourself
The government not the only one good at spin
If i was Rudd i would be more concerned as to the publics view at the moment not the miners
Its not very popular in WA

 

[Whiskers]

I've now deleted the email. Will try to find this for you on their website.

Thanks Julia, That would be good if you can.

Trainspotter, apparently there was a little discussion, but a new tax system is hardly the sort of thing that the Gov would make a heads of agreement prior to the annoucement.

I've never heard of a gov doing anything like this for tax issues. Project development or research etc, yes, but tax law issues, no.

It wouldn't be a good look from the rest of the country. You would then have every industry lineing up to do a deal with the gov about new laws.

 

[trainspotter]

All in one week?
Take a deep breath and think it through yourself
The government not the only one good at spin
If i was Rudd i would be more concerned as to the publics view at the moment not the miners
Its not very popular in WA

LOL@todster .. have a look as to how much was wiped off the share price of BHP & Rio Tinto. Yeppers all in one week. The superannuants that own shares in these bastions will be letting Mr Rudd know all about it directly.

If you did some research todster you will already notice that what I have written "hypothetically for comedy purposes only" has alrady been reported in the media from several mining sources and in fact has started to take place. Watch this space comrade.

Thanks Whiskers. Maybe this is what governments in future need to do. Consult a little more with the respective parties prior to implementing measures to cripple the particular industry. But then again when they did get the advice (Insualtion & BER) they chose to ignore it. Ho hum. Bureaucracy at it's best.

 

[todster]

LOL@todster .. have a look as to how much was wiped off the share price of BHP & Rio Tinto. Yeppers all in one week. The superannuants that own shares in these bastions will be letting Mr Rudd know all about it directly.

If you did some research todster you will already notice that what I have written "hypothetically for comedy purposes only" has alrady been reported in the media from several mining sources and in fact has started to take place. Watch this space comrade.

Thanks Whiskers. Maybe this is what governments in future need to do. Consult a little more with the respective parties prior to implementing measures to cripple the particular industry. But then again when they did get the advice (Insualtion & BER) they chose to ignore it. Ho hum. Bureaucracy at it's best.

Ican't seem to find the hyperthetical in your post old mate.
Can you point me in direction of the mining sources that have made these statements to the market as surely there price sensitive.
Comedy wow i bet your parties are a hoot lol

 

[Mofra]

Trainspotter, apparently there was a little discussion, but a new tax system is hardly the sort of thing that the Gov would make a heads of agreement prior to the annoucement.

I've never heard of a gov doing anything like this for tax issues. Project development or research etc, yes, but tax law issues, no.

I do have some exposure to this Government and in particular the lack of process in planning initiatives, and given the track record so far and the reportred lack of consultation with industry prior to the announcement I can't be confident that appropriate planning measures have been taken.

 

[Putty7]

I'm not a fan of Rudd so I am a little biased but I am lost as to how the man thinks. It has been said he likes to have things done his way so was this his idea to railroad the mining tax through against advice from others in the party. Getting the miners offside is political suicide, if it wasn't for the mining sector performing so well keeping our exports flowing Australia would be in a deeper hole than the one we are in now due to Rudds continual stuff ups.

I agree seeing our money going offshore in profits isn't ideal but who is going to fund the expansion of the sector if the capital doesn't come from offshore ?? Who is going to pony up millions or billions of dollars to get mines off the ground only to get taxed to the hilt when other Countries have similar resources that need capital investment to develop and offer tax incentives.

I heard someone say "I would rather leave behind something for the next generation other than a hole in the ground". If it wasn't for that hole in the ground not much would be going out in exports keeping us afloat, we don't manufacture a lot here anymore because it is cheaper elsewhere to do so and more economically viable for companies to import finished products, so we are left with primary industry to carry the load.

How will it pan out, who knows, Rudd will be creating more spin to baffle the sheeple before the election and the miners will be lining up in arms with a smear campaign to combat it, the average joe is probably more interested in ALF winning a logie.

 

[trainspotter]

Ican't seem to find the hyperthetical in your post old mate.
Can you point me in direction of the mining sources that have made these statements to the market as surely there price sensitive.
Comedy wow i bet your parties are a hoot lol

Oh Deary deary me todster. Please read my original post again:

"Let's just for comedy purposes only think this through logically. Say I am a great big naughty mining company that employs thousands of skilled workers and making billions but yet still paying billions in tax." You are right there old friend .. the word "hypothetical" is not written by my good self ANYWHERE ! I deeply and humbly apologise fore this massive erratum. I thought the "great big naughty mining company " may have been a giveaway but nevermind.

On the right of the screen home page of ASF you will see where links are available to click on to take you directly to the source. www.thebull.com.au is another outlet for this kind of information.

My soirées are reknowned for there comedic affect on the attendees. Laughing gas will do that to a person.

 

[todster]

Lets for comedy purposes think back to the 1990s and think how native title was going to do the same thing,we all know what happened after that

 

[todster]

Oh Deary deary me todster. Please read my original post again:

"Let's just for comedy purposes only think this through logically. Say I am a great big naughty mining company that employs thousands of skilled workers and making billions but yet still paying billions in tax." You are right there old friend .. the word "hypothetical" is not written by my good self ANYWHERE ! I deeply and humbly apologise fore this massive erratum. I thought the "great big naughty mining company " may have been a giveaway but nevermind.

On the right of the screen home page of ASF you will see where links are available to click on to take you directly to the source. www.thebull.com.au is another outlet for this kind of information.




My soirées are reknowned for there comedic affect on the attendees. Laughing gas will do that to a person.

For some additional info try David Buckinghams little piece in Business Spectator and what the super industry has come out with this morning

 

[trainspotter]

Lets for comedy purposes think back to the 1990s and think how native title was going to do the same thing,we all know what happened after that

Ummmmmm Mabo was all about land rights and my understanding of this was the "ownership" of the land was the sticking point. Eddie Mabo was trying to get the government to understand that the land belonged to the aboriginals even though they did not have a title deed as such.

However, the crown continues to assert ownership of mineral rights in every other state, and this is not contradicted by any existing land rights legislation.

Under the NT Land Rights Act traditional Aboriginal landowners have the limited right (all major known mining deposits in the NT were excluded from the act when it was passed!) to refuse exploration for minerals ”” subject to the "national interest". So you can bet London to a brick that "national interest" will be forthcoming provided that the mining companies purchase the "sovereignty" of the indigenous population affected by mining.

Hope this clears this up.

 

[trainspotter]

For some additional info try David Buckinghams little piece in Business Spectator and what the super industry has come out with this morning

Post a link so I can read it then. The word SUPER is starting to mean less and less these days. "Super profits", "Superannuation", "Superman" (disguises himself as a nerd with glasses just like Rudd).

All I know if the minerals that are in the ground are by rights every single Australians to own then why is Kevin doing his best to disenfranchise the very corporations that are digging it up for us?

 

[Whiskers]

Lets for comedy purposes think back to the 1990s and think how native title was going to do the same thing,we all know what happened after that

Similarly with the GST and saying "Sorry" to name a couple. There is always a degree of uncertainty and fear when the dynamic changes to unknown territory.

I do have some exposure to this Government and in particular the lack of process in planning initiatives, and given the track record so far and the reportred lack of consultation with industry prior to the announcement I can't be confident that appropriate planning measures have been taken.

Yeah, the track record isn't great so far, but I'm thinking with this issue in the hands of two seasoned players, Rudd and Swan, they are playing more of a drip feed, see what the reaction is, well before the election and fine tune a bit into the election campaign.

I agree seeing our money going offshore in profits isn't ideal but who is going to fund the expansion of the sector if the capital doesn't come from offshore ?? Who is going to pony up millions or billions of dollars to get mines off the ground only to get taxed to the hilt when other Countries have similar resources that need capital investment to develop and offer tax incentives.

Just loosely on this issue, given the backflip on 'Land Banking' by non residents, and the sensitivity of foreign ownership of our resource companies, I'm wondering whether they see this policy as an attempt to do something similar to make the investment in Aus resource companies and payment of high dividends, as opposed to continued development and expansion, to the home country residents less attractive.

I don't know the numbers at present, but there has been plenty of companies setup for single project development which pay higher dividends as opposed to a company that has progressive exploration and development projects.

Even large companies recieve dividends from smaller subsidiarys that are often the project developers and managers. These project developers are often partly owned by foreign corporations who distribute their profits via dividends as well as often subsidised product to the foreign country.

Without the final detail, while BHP et al appear to be affected heavily, I'm not sure the tax is aimed at them in particular... rather than the overseas conglomerates that own substantial shareholdings and often the operators in many of our oil and coal resources in particular.

It's along the same lines as 'Land Banking' only it's 'Resource Stripping'. Foreign owned business including farms and meatworks are also producing product and sending it home to the parent, paying little or no tax in Aus... and in the case of some just close down when the resource has dried up or got cheaper to do the same in another country... particularly third world country like Papua New Guinea and Africa, where the wealth of resources has often not reflected into a better standard of living at all, rather the degredation of their enviornment and resources.

 

[trainspotter]

Ican't seem to find the hyperthetical in your post old mate.
Can you point me in direction of the mining sources that have made these statements to the market as surely there price sensitive.
Comedy wow i bet your parties are a hoot lol

Here is one mining company that isn't price sensitive?

Xstrata halts copper exploration project over proposed superprofits mining tax

SWISS mining giant Xstrata says it has suspended a $30 million copper exploration in central Queensland due to the impact of Australia's proposed resources super profits tax.

The company said an exploration project in the Mt Isa and Cloncurry districts expected during the next three years had been put on hold.

"We have decided to suspend exploration activities in North Queensland until there is greater certainty on the fiscal regime for future mining developments,'' Xstrata Copper North Queensland chief operating officer Steve de Kruijff said.

http://www.news.com.au/business/bre...ofits-mining-tax/story-e6frfkur-1225864532340

Oooooooooooopsies ........ Ground control to Major Tom, your circuits dead there is something wrong, Can you hear me Major Tom?

 

[Whiskers]

Here is one mining company that isn't price sensitive?

Xstrata halts copper exploration project over proposed superprofits mining tax

SWISS mining giant Xstrata says it has suspended a $30 million copper exploration in central Queensland due to the impact of Australia's proposed resources super profits tax.

The company said an exploration project in the Mt Isa and Cloncurry districts expected during the next three years had been put on hold.

"We have decided to suspend exploration activities in North Queensland until there is greater certainty on the fiscal regime for future mining developments,'' Xstrata Copper North Queensland chief operating officer Steve de Kruijff said.

Firstly, re the media hype and fear: the key words "exploration project" are often overlooked or not comprehended in context in the fear of loosing heaps of foreign investment.

The words "Halts Project" seem to gain extraordinary emphasis by some.

Exploration project does not necessairly equal lots of money spent.

Multinationals are famous for pegging huge areas of land and abandoning exploration projects when they don't pan out to be huge, or at least substantiual enough to fit their corporate objectives, or at least tying up extra development that if in other hands would be competitive to their existing resources, by just doing minimal work to hold the permit.

Secondly, this may be a classic example of the previous post where I suggested the operator comes from a low tax regeime, is a wealthy conglomerate looking to get a monolopy or substantial control over their line of products, or a state owned corporation looking to source cheap product by 'unorthodox' accounting. Afterall that is the aim of business.

There is a lot to figure out after one gets over the emotional fear of the superficial issues... not the least of which is the potential for mid cap and more private operators to get some of these projects going if a few less large tracts of land were not taken up by conglomerates.

I know of quite a few small profitable operations that multinationals would not develop... but just sit on until they had to relinquish them.

 

[Whiskers]

Further to above posts, I'm curious why the word 'Supertax' or 'Superprofits' is almost exclusively used lately as opposed to the earlier 'Windfall Tax'.

Could it be that it's more inflaminitary!? From the press and Newsletter writers point of view it certainly seves the purpose of attracting attention.

It's worth trying to figure out who would be affected most by a Windfall Tax.

I recall some changes under Howard about 2005/06 that changed and generally tightened the rules for Capital Gains Tax for non residents. I think a company can transfer it's operations offshore without paying CGT. I think a non residents holding about 10% in a company can avoid paying CGT. Need to get more detail there.

Then there is the issue of tax avoidance... eg a non-resident selling shares in a non-Australian entity that holds part of or controls Australian assets that may have been pumped and dumped... a la the GFC.

The full implications are still not clear, but since my main interest is in miners, I'm wondering if tighter restrictions on foreign ownership especially transferring money out of Aus as dividends or Capital gain, may not necessairly reflect in adverse conditions for Aus companies and economy.

 

[Whiskers]

For some additional info try David Buckinghams little piece in Business Spectator and what the super industry has come out with this morning

Yeah good article. Much more informative without so much rethorical commentry.

http://www.businessspectator.com.au...ysteria-pd20100510-5ARLS?OpenDocument&src=sph

Published 6:27 AM, 10 May 2010
Last update 9:57 AM, 10 May 2010
David Buckingham

Behind the resource rent tax hysteria

The broad contours of the debate around the federal government’s new Resource Super Profits Tax (RSPT) are now clear after a full week of debate. Broadly, there are three heavily contested lines of argument:

– Whether the resource sector already pays enough tax;

– Whether the new RSPT will overtax projects and damage the industry;

– What will be the way forward between government and the industry.

I’d like to draw on my experience and some analysis to comment on each of these.


Effective company tax rates

To start with, the sector has been very vocal that it is already very heavily taxed. This is worth subjecting to some scrutiny.

In this space, miners will always quote the 30 per cent company tax rate. They won’t talk so much about the other elements of the company tax system that are equally important, but far less obvious to the casual observer. For example, not many miners will talk about the concessions they enjoy under the company tax. But we all know that concessions like accelerated depreciation mean that the effective tax rate is well below the headline rate.

I was interested to find this point raised in the Australia’s Future Tax System review (the Henry review). The review team quotes a study by Markle and Shackelford which estimates how much these concessions reduce effective tax rates across different industries, and different countries. It finds that in Australia the biggest beneficiaries from concessions are information and mining sectors. Once you allow for concessions, the mining sector faces an effective company tax rate of 17 per cent, far shy of the 30 per cent headline rate.

The Screen Capture shot below headed 'New tax rates' goes here.

Hysteria from the 1990s

Finally, I turn to the question of what the way forward will be for the government and the industry.

Ministers in this government will not have forgotten the scare campaigns of the past.

In the 1980s when the Petroleum Resource Rent Tax (PRRT) was mooted then introduced, the backlash was fierce.

These words by Alexander Downer sum up the anti-PRRT cause from those days:

“I think it is an extremely regrettable proposal; I think it is an ill-considered proposal; and, what is worse, I think it is an ideological proposal which is going to do very real damage to oil exploration in Australia. It is going to affect our balance of payments situation and it is going to affect the overall state of our economy. If this is to be one of the pieces of legislation which will form the general epitaph of the government, I think it is highly appropriate. It is an anti-production, anti-development, anti-profit and anti-export tax, and the government deserves to be condemned for the irrationality of that decision."

Of course, we all know what happened next:

In the words of the subsequent government review, tabled in Parliament in 1992, “The extension of the PRRT to the Bass Strait project has rejuvenated activity in the Gippsland Basin. New field development and infill drilling programs on extending development will significantly extend the life of the project and arrest the rate of decline in production.”

A similar pattern occurred before I arrived at the Minerals Council in the 1990s with the long and scarifying debate around native title. Australians were told native title would cause an investment strike, lost projects, lost jobs, exports and national income. As we all remember, the debate had some ugly features throughout.

Of course, we all know what happened next – native title legislation was passed, the sky did not fall in, and the mining industry went on to grow and prosper in the years that followed.

Would miners prefer a lower rate? Of course they would. It is worth making some noise, if there is any chance at all of a 30 per cent or even 20 per cent rate. Miners know that the best way to make noise is to threaten withdrawal from the market. They are not alone in this – it has all too often been the tactic whether the issue is executive salaries, taxation treatment of hedge funds/private equity, gold taxes, financial system reform, etc. The public interest requires that at some point a line, a balance, be drawn.

I think the government recognises this. It has already very clearly shown the path forward in resolving this conflict – a Resources Tax Consultation Panel, which was constituted the moment the tax package was launched.

That process has now been running for a week. More than 80 companies are said to be engaged with it. These are the companies that will shape what is an already effective tax design into legislation that works for the sector. The challenge for the players throwing rocks will be to decide whether they are in that process, or whether they will leave it to their competitors. I know which type of company will do better in the end.

David Buckingham is a former head of the Minerals Council

 

[JimBob]

Looking at that last table, i dont think any mining project would go ahead if the profit margin was 6-10%. They would have to be more around 25-30%+ to account for all the unknowns encountered along the way. I hope im ready it correctly.

It is hard to work through all the spin from both sides at the moment.

 

[Whiskers]

Looking at that last table, i dont think any mining project would go ahead if the profit margin was 6-10%. They would have to be more around 25-30%+ to account for all the unknowns encountered along the way. I hope im ready it correctly.

It is hard to work through all the spin from both sides at the moment.

Yes and Yes.

Assuming David Buckingham has got the maths right, it probably explains the difficulty or burden on smaller operators in Aus getting projects up as opposed to trying to compete with conglomerates with deep pockets.

I suppose it could even be called Aus discriminating against our own Small Business.

 

[trainspotter]

The PRRT did not have a state royalties tax attached to it. This is a double tax. Ken Henry report recommended the royalties be removed then the 40% tax placed overlay. Fair enough.

As for native title issues please refer to my previous post stating:-

Mabo was all about land rights and my understanding of this was the "ownership" of the land was the sticking point. Eddie Mabo was trying to get the government to understand that the land belonged to the aboriginals even though they did not have a title deed as such.

However, the crown continues to assert ownership of mineral rights in every other state, and this is not contradicted by any existing land rights legislation.

Without the mining companies squawking this decision of the crown to assert ownership of minerals would not have happened without the necessary legislation.

Why not call it a MEGA tax and give it some street cred. This way the children who will inherit this penalty will understand the consequences earlier. Also does away with the supercilious word of "super".

Always two sides to the story.